(1 of )5/12/2007:E1: Condo construction that incorporates the walls of the century-old cannery in the city's historic Railroad Square has been delayed.
PC: Condominium construction that incorporates the walls of the century-old cannery in the city's historic Railroad Square has been delayed because of disputes between the developer and the agency seeking to create a transit hub and build a mixed use project next door. Shot on Friday May 11, 2007. ( Press Democrat / Charlie Gesell )

The San Francisco developer who once planned a sweeping transit-oriented retail and housing complex in Railroad Square has abandoned a scaled-back version of the project, citing political opposition by the City Council.

John Stewart, the managing partner of Santa Rosa Canners, LLC, sent a letter Wednesday to Mayor Scott Bartley explaining his decision to cease all work on the project.

"Financing and construction of this project is difficult enough as it is, let alone without broad-based, top-down support from the city," Stewart wrote.

The City Council voted 4-3 last week not to support Stewart's latest plan to build 93 units of affordable housing for seniors on his 2.1-acre property on Third Street.

The majority of council members questioned the appropriateness of the site for low-income seniors and didn't feel the benefits to the city justified the public subsidies.

Supporters thought the project could jump-start development in the area, and called it unwise to turn away $10 million of redevelopment and grant funding that would have funded key infrastructure upgrades in the area.

Early plans for the 11-acre site called for a 40,000-square-foot food-and wine center similar to the Ferry Building in San Francisco, 40,000 square feet of office space, 279 units of market rate and affordable housing, a 263-space parking garage and several restaurants.

Stewart noted that the 2008 plan "encountered the worst market collapse since the Great Depression" followed by the demise of the state's 425 redevelopment agencies.

While he acknowledged the chance of another vote on the issue next week, something Councilwoman Julie Combs said she was considering, Stewart said that with both the mayor and vice mayor against the project, "it appears to us and our advisers that the city's body politic is and will remain deeply divided."

Stewart said Vice Mayor Erin Carlstrom's characterization of the proposed project as a "bailout" was a "particularly offensive but instructive harbinger" of the project's fate.

He noted that his company has spent $7.4 million trying to develop its two Railroad Square properties to date, and would have recouped "about a fifth" of the $3.6 million expended on the cannery site.

"This doesn't feel like a bailout. It feels like private sector investment in a challenging site that would have generated significant public benefits," Stewart wrote.

Carlstrom previously said that she considered the project a bailout of a private developer because it proposed using millions in public dollars originally set side for the development of the entire site, not just Stewart's property.

She said that 85 percent of the $27.3 million project was being funded with public subsidies. She arrived at that figure by including $13.2 million in low-income housing tax credits, she said.

But that's misleading, Stewart said, because the $13.2 million would all be private equity. Investors in such projects get tax breaks, but that doesn't make it a government subsidy, he said.

"She's flat-out wrong on the 85 percent," Stewart said after last week's vote. "Where did she come up with that?"

Stewart said he was surprised when Carlstrom made the statement about a bailout because it seemed anyone familiar with the development of affordable housing knows some public support is required.

"That one really took us all aback because it suddenly personalized this whole thing," Stewart said.

Carlstrom said the project had changed so much since it was first proposed that many of the public benefits that would have flowed from the larger project were not in the scaled-back version.

"At that time, it was appropriate that we support a project like that through public money," Carlstrom said. "At this stage, without those benefits, I see it as a bailout."

Carlstrom and her husband, political consultant Nick Caston, lived in Railroad Square until 2011. They were also involved in efforts by the Accountable Development Coalition to negotiate a so-called"community benefits agreement" with Stewart for his project.

Carlstrom stressed that her efforts preceded her time on the council and that other council members also have met directly with Stewart.

"I actually think it gave me really great insight into the project," Carlstrom said.

The ADC pushed Stewart to hire union labor, build to the highest environmental standards and to include affordable housing for all ages, Carlstrom said.

The Sonoma County Young Democrats, in which Carlstrom also was active, strongly supported all-age affordable housing for the project.

But other groups pushed in other directions. The West End Neighborhood Association pressed for the affordable units to be for those age 55 and older.

Stewart said he tried hard to make the project pencil out with some affordable units for families, but couldn't because of increased parking requirements, need for larger units and limited space for amenities for children on the tight creekside site.

Mayor Scott Bartley said he "went back and forth" on the issue at last week's meeting, but is comfortable with his vote against the project.

He said the latest plan struck him as an effort by a developer to build anything instead of what was right for the property.

"To my mind, sometimes nothing is better than something," Bartley said. "There's nothing wrong with waiting for the right thing to happen."

Timing as much as anything else may have doomed the project.

Stewart is suing the state Department of Finance to prevent the state from "sweeping" up $5.5 million in redevelopment funds set aside for the development. The next hearing is set for May 17. Even if the council voted to reconsider the issue next week, the issue would have to come back for another hearing May 2, which may have been cutting it too close.

Stewart will likely remain a player in the development of the site. He still owns property that offers key creek access and space for a possible parking garage. He has pledged to cooperate with the city; Sonoma-Marin Area Rail Transit, which expects to be running trains through the area by 2016; and any new developers of the property.

Councilman Gary Wysocky said he was surprised his colleagues were so focused on the type of affordable housing on the site that they were willing to walk away from grant money and redevelopment money that is unlikely to return.